Financial and Managerial Accounting Wild, Shaw, and Chiappetta Fourth Edition McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies, Inc All Chapter 11 Corporate Reporting and Analysis Conceptual Learning Objectives C1: Identify characteristics of corporations and their organization C2: Explain characteristics of, and distribute dividends between, common and preferred stock C3: Explain the items reported in retained earnings 11-3 Analytical Learning Objectives A1: Compute earnings per share and describe its use A2: Compute price-earnings ratio and describe its use in analysis A3: Compute dividend yield and explain its use in analysis A4: Compute book value and explain its use in analysis 11-4 Procedural Learning Objectives P1: Record the issuance of corporate stock P2: Record transactions involving cash dividends, stock dividends, and stock splits P3: Record purchases and sales of treasury stock and the retirement of stock 11-5 C1 Characteristics of Corporations Advantages Advantages Separate Separate legal legal entity entity Limited Limited liability liability of of stockholders stockholders Transferable Transferable ownership ownership rights rights Continuous Continuous life life Lack Lack of of mutual mutual agency agency for for stockholders stockholders Ease Ease of of capital capital accumulation accumulation Disadvantages Disadvantages Governmental Governmental regulation regulation Corporate Corporate taxation taxation 11-6 C2 Basics of Capital Stock Total Total amount amount of of stock stock that that aa corporation’s corporation’s charter charter authorizes authorizes itit to to sell sell Total Total amount amount of of stock stock that that has has been been issued issued or or sold sold to to stockholders stockholders 11-7 P1 Issuing Par Value Stock Par Par Value Value Stock Stock On On September September 1, 1, Matrix, Matrix, Inc Inc issued issued 100,000 100,000 shares shares of of $2 $2 par par value value stock stock for for $25 $25 per per share share Let’s Let’s record record this this transaction transaction Record: Record: 1 The The cash cash received received 2 The The number number of of shares shares issued issued ×× the the par par value value per per share share in in the the Common Common Stock Stock account account 3 The The remainder remainder is is assigned assigned to to Paid-In Paid-In Capital Capital in in Excess Excess of of Par Par Value, Value, Common Common Stock Stock 11-8 P2 Cash Dividends Three important dates n ide v i D ds Date of Declaration Date of Record Date of Payment Record liability for dividend No entry required Record payment of cash to stockholders 11-9 P2 Stock Dividends The The corporation corporation distributes distributes additional additional shares shares of of its its own own stock stock to to its its stockholders stockholders without without receiving receiving any any payment payment in in return return Why Why aa stock stock dividend? dividend? 100 shares HotAir, Inc Common Stock $1 par ••Can Can be be used used to to keep keep the the market market price price on on the the stock stock affordable affordable ••Can Can provide provide evidence evidence of of management’s management’s confidence confidence that that the the company company is is doing doing well well 11-10 P2 Stock Splits A distribution of additional shares of stock to stockholders according to their percent ownership $10 par value Common Stock Old Shares 100 shares $5 par value New Shares Common Stock 200 shares 11-11 C2 Preferred Stock A A separate separate class class of of stock, stock, typically typically having having priority priority over over common common shares shares in in Dividend Dividend distributions distributions Distribution Distribution of of assets assets in in case case of of liquidation liquidation Usually Usually has has aa stated stated dividend dividend rate rate Normally Normally has has no no voting voting rights rights 11-12 P2 Cumulative or Noncumulative Dividend Cumulative Dividends Dividends in in arrears arrears must must be be paid paid before before dividends dividends may may be be paid paid on on common common stock stock Vs Noncumulative Undeclared Undeclared dividends dividends from from current current and and prior prior years years do not not have have to to be be paid paid in in future future years years Most preferred stock is cumulative 11-13 C3 Statement of Retained Earnings Total cumulative amount of reported net income less any net losses and dividends declared since the company started operating 11-14 C3 Statement of Stockholders’ Equity This is a more inclusive statement than the statement of retained earnings 11-15 End of Chapter 11 11-16 .. .Chapter 11 Corporate Reporting and Analysis Conceptual Learning Objectives C1: Identify characteristics of corporations and their organization C2: Explain characteristics of, and distribute... Compute price-earnings ratio and describe its use in analysis A3: Compute dividend yield and explain its use in analysis A4: Compute book value and explain its use in analysis 11- 4 Procedural Learning... transactions involving cash dividends, stock dividends, and stock splits P3: Record purchases and sales of treasury stock and the retirement of stock 11- 5 C1 Characteristics of Corporations